Italy has had to repay a record £307 million to the European Union after an
investigation found that a motorway project in the south of the country was
riven with mafia infiltration, corruption and kickbacks.

EU anti-fraud investigators found widespread "irregularities" surrounding repairs and upgrades to a stretch of the A3 motorway between Salerno, south of Naples, and Reggio-Calabria, on the toe of the boot-shaped peninsula.

The huge refund from Rome is the largest in the EU's history, deepening Italy's budget deficit at a time of turbulence on the financial markets and concerns that the Italian state is not in control of its finances.

It accounted for over half of the £555 million of detected and recovered fraud in the EU's budget last year.

The Salerno-Reggio Calabria autostrada has been dogged by corruption allegations for years and is seen as a symbol of the enormous challenges facing the 'Mezzogiorno' – Italy's southern half.

The investigation found that more than 381 million euros was lost through fraud, fake contracts and ghost road works.

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The region of Calabria, through which the motorway passes, is notorious for its 'Ndrangheta mafia, an organised crime syndicate which is now regarded as being more powerful than the better known Cosa Nostra of Sicily.

Italian investigations into mafia-related fraud are continuing, meaning that details of the EU's biggest funding disaster are still sketchy.

"The sum has been formally recovered following investigations focusing on two separate intervention programmes, spread over several years, but all concerning the Salerno-Reggio Calabria autostrada," said Giovanni Kessler, the head of the EU's anti-fraud investigator, Olaf.

"This money had already been spent, so the Italian state is obliged to give it back to the EU with the burden subsequently falling on taxpayers."

News of the refund came as Italy’s budget deficit rose in the first quarter of 2012 yesterday (WEDS) to the highest in three years in the midst of a deepening recession and as jumpy financial markets have hit Italy with soaring debt servicing costs threatening to make it the latest casualty of the euro-zone crisis.

Leandra D'Antone, an historian, described it as "a true Italian shame" in a country that is not easily shocked by tales of corruption.

ANAS, Italy's national roads agency, claimed that the repayment was made due to a misunderstanding, after funds were moved from one project to another.

"This is about transfers of funds of equal amount from projects concerning the Salerno-Reggio Calabria motorway to other projects in progress, also falling within ANAS' competence," the agency said in a statement.

But the scandal has prompted fury in Italy at a time when voters are being asked to tighten their belts to meet EU austerity targets and face tough economic reforms imposed by Mario Monti, the prime minister, to bring down the country's 1.9 trillion euro national debt.

Tino Iannuzzi, an MP for the centre-Left Democratic Party, attacked "an injustice for citizens", saying that taxpayers had had to pay for the initial corruption and foot the bill for the repayment of funds.

The EU anti-fraud investigation began in 2007 and ended in 2010 in collaboration with Italian prosecutors and the country's court of auditors.

Mr Kessler expressed his concern that, as austerity and the recession hit public finances, governments were becoming less willing to report fraud.

"The decrease of information from public authorities is something which is worrying us," he said.

He said the fight against fraud was "even more crucial" at a time of economic crisis because EU funds were needed to promote growth.

The scandal comes as the European Commission and MEPs are pushing for a 6.8 per cent increase in the EU's budget next year, with large rises in expenditure on road and other infrastructure in southern and eastern Europe.

"The fact that this money has been recovered is good news, but also shows how vulnerable EU subsidies are to fraud and mismanagement," said Vincenzo Scarpetta, of the Open Europe think-tank.

"Instead of asking for more cash, the Commission and MEPs should make sure that taxpayers know where every penny of their money going via Brussels is spent."